Despite cooling in October and November, inflation remains way above the Fed’s 2%-3% target range. Shares of companies exposed to commodities, such as metals and agricultural products, act as a natural hedge against inflation, as commodity prices tend to increase during such periods.

According to Goldman Sachs Group Inc. (GS) commodities will be the best-performing assets in 2023 and are expected to offer investors more than 40% returns. Furthermore, commodity stocks help in portfolio diversification, thereby minimizing risk.

Given the backdrop, investors might add fundamentally sound commodity stocks Rio Tinto Group (RIO), Vale S.A. (VALE), and The Mosaic Company (MOS) to their watchlist for 2023.

Rio Tinto Group (RIO)

Headquartered in London, RIO is a mining and metals company that explores for, mines, and processes mineral resources worldwide. Its segments include Iron Ore; Aluminum; Copper; and Minerals.

On December 16, 2022, RIO completed its acquisition of Turquoise Hill Resources Ltd (TRQ) for approximately $3.10 billion, simplifying its ownership of the world-class Oyu Tolgoi mine in Mongolia. This acquisition dramatically expands RIO’s copper portfolio.

RIO has paid dividends for seven consecutive years. Over the last five years, RIO’s dividend payouts have grown at a 23.65% CAGR. While RIO’s four-year average dividend yield is 10.47%, its current dividend translates to a 7.69% yield.

RIO’s non-current assets came in at $78.49 billion for the period ended June 30, 2022, compared to $78.46 billion for the period ended December 31, 2021. Also, its total liabilities came in at $44.81 billion, compared to $46.31 billion for the same period.

RIO’s Pilbara operations produced 84.30 million tonnes for the third quarter that ended September 30, 2022, up marginally year-over-year. Moreover, its mined copper came in at $138 million, up 10% year-over-year. Also, its titanium dioxide slag came in at $310 million, up 48% year-over-year.

Analysts expect RIO’s revenue and EPS to come in at $54.34 billion and $8.83, respectively, for the year ending December 2022. Over the past three months, the stock has gained 25.9% to close the last trading session at $69.43. 

RIO has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. 

The stock also has a B grade for Value and Quality. Within the B-rated Industrial – Metals industry, RIO is ranked #8 out of 36 stocks within the B-rated Industrial- Metals industry.

Beyond what is stated above, we’ve also rated RIO for Growth, Stability, Sentiment, and Momentum. Get all RIO ratings here.

Vale S.A. (VALE)

Headquartered in Rio de Janeiro, Brazil, VALE, together with its subsidiaries, produces and sells iron ore and iron ore pellets for use as raw materials in steelmaking in Brazil and internationally. The company operates through Ferrous Minerals and Base Metals segments.

On November 17, 2022, VALE announced the Sol do Cerrado solar project. The project is one of the largest solar farms in Latin America, with an installed capacity of 766 megawatts peak and enough electricity to meet the needs of 800,000 people. This venture is closely linked to VALE’s ambition to lead sustainable mining.

On the same day, VALE announced that it had entered into a long-term agreement with General Motors Company (GM) for the long-term supply of battery-grade nickel sulfate from Vale’s proposed plant at Bécancour, Québec, Canada.

This agreement strengthens VALE’s presence in the emerging EV space while securing for GM a supply of nickel sulfate from a U.S. free-trade partner to support its fast-growing EV production needs in North America.

Over the last five years, VALE’s dividend payouts have grown at a 38.97% CAGR. While VALE’s four-year average dividend yield is 7.47%, its current dividend translates to a 0.70% yield.

VALE’s net income came in at R$4.46 billion ($840.39 billion) for the third quarter that ended September 29, 2022, up 14.6% year-over-year. The company’s EPS increased 28.9% year-over-year to $0.98.

VALE’s total liabilities came in at R$47.38 billion ($8.93 billion), for the period ended September 29, 2022, compared to R$52.79 ($9.95 billion), for the period ended September 29, 2021.

VALE’s revenue and EPS are expected to come in at $43.06 billion and $3.40, respectively, for the period ending December 2022. Over the past three months, the stock has gained 23.8% to close the last trading session at $16.07.

VALE’s overall B rating equates to a Buy in our POWR Ratings system. It has an A grade for Quality and a B for Value and Sentiment. It is ranked #3 in the same industry.

Click here to access VALE’s additional POWR Ratings for Stability, Growth, and Momentum.

The Mosaic Company (MOS)

MOS and its subsidiaries manufacture and sell concentrated phosphate and potash crop nutrients in North America and other countries. Its segments are Phosphates; Potash; and Mosaic Fertilizantes. 

On November 7, 2022, Joc O’Rourke, President and CEO, said, “Mosaic delivered record sales in the first nine months of 2022, and we expect favorable fundamentals as we conclude the year and look forward to 2023.”

MOS has paid dividends for 11. Over the last five years, MOS’s dividend payouts have grown at a 23.65% CAGR. While MOS’s four-year average dividend yield is 0.82%, its current dividend translates to a 1.32% yield.

MOS’s net sales came in at $5.35 billion for the second quarter that ended September 30, 2022, up 56.5% year-over-year. Its net earnings increased 126.3% year-over-year to $841.7 million. Moreover, the company’s EPS came in at $2.42, up 149.5% year-over-year. 

Analysts expect MOS’s revenue to increase 56.4% year-over-year to $19.33 billion in 2022. Its EPS is estimated to increase 136.5% year-over-year to $11.92 in 2022. Over the past year, the stock has gained 24.4% to close the last trading session at $45.36.

MOS has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Value and a B for Growth and Quality. It is ranked #8 out of 28 stocks in the Agriculture industry.

Beyond what is stated above, we’ve also rated MOS for Sentiment, Momentum, and Stability. Get all MOS ratings here.

RIO shares were trading at $69.19 per share on Monday afternoon, down $0.24 (-0.35%). Year-to-date, RIO has gained 15.11%, versus a -18.77% rise in the benchmark S&P 500 index during the same period.

About the Author: Rashmi Kumari

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...

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